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Start for freeEconomic Outlook for the MENA Region
The global economy is showing signs of slowing down, with projections for GDP growth being revised downward. For the Middle East and North Africa (MENA) region, the International Monetary Fund (IMF) has projected a growth rate of 2.6% for 2025, which is about 1.3 percentage points lower than previous forecasts. This adjustment is primarily due to uncertainties stemming from global trade dynamics and ongoing geopolitical conflicts.
Despite this downward revision, the MENA region is expected to perform better than the global average. The global economy is anticipated to grow at around 2.1% in 2025, which is lower than the previous forecast of nearly 3%. The MENA region's projected growth of 2.5-2.6% puts it in a relatively stronger position compared to global trends.
Gulf Cooperation Council (GCC) Performance
One of the key factors contributing to the MENA region's relatively robust outlook is the performance of the Gulf Cooperation Council (GCC) countries. Recent decisions by OPEC+ have led to unexpected increases in oil production, which has positively impacted growth projections for the GCC. The GDP growth forecast for the GCC has been revised upward to 3.7%, a significant improvement from the previous year's 1.8%.
This upward revision comes despite concerns about the impact of global trade tensions on oil prices. Even without factoring in these potential challenges, the GCC appears poised to outperform many other regions economically.
Middle-Income Countries in MENA
The economic outlook for middle-income countries in the MENA region, such as Egypt and Jordan, is more nuanced. The impact of global trade tensions on these economies depends largely on the outcome of ongoing negotiations regarding tariffs. If agreements are reached and tariffs remain on hold, the direct impact on lower-income countries in the region may be less severe.
However, these countries are likely to experience secondary or tertiary effects due to the global economic slowdown, particularly in terms of commodity prices. Countries that rely heavily on imports may see some benefits from lower commodity prices, while those dependent on exports could face challenges.
Some specific countries to watch include:
- Iraq: Likely to be more adversely impacted due to its reliance on oil exports.
- Jordan: With over 25% of its exports going to the US, it could be significantly affected if tariffs are implemented.
- Bahrain: Similar to Jordan, it may face challenges related to trade tensions.
- Tunisia and Algeria: These countries may experience a combination of impacts from both tariffs and changes in oil prices.
Saudi Arabia's Economic Trajectory
Saudi Arabia, as the largest economy in the MENA region, deserves special attention. The kingdom has been pursuing an ambitious economic transformation plan known as Vision 2030, which includes several mega-projects aimed at diversifying the economy away from oil dependence.
Oil Sector Performance
Recent OPEC+ decisions have led to a positive outlook for Saudi Arabia's oil sector. Oil GDP growth is forecast to expand by about 2.6%, a significant improvement from the previous year's decline of more than 4%. However, there are concerns about oil prices for the rest of the year, with expectations hovering around the early $60s per barrel. If these lower prices persist for an extended period, it could impact the overall budget and potentially lead to a budget deficit.
Diversification Efforts
Despite potential challenges in the oil sector, Saudi Arabia has made significant progress in its diversification efforts. Key areas of growth and development include:
- Economic growth in non-oil industries
- Increased female participation in the labor market
- Continued investment in human capital
- Improving unemployment figures
- Strategic investments by the sovereign wealth fund in various industries
These diversification efforts have reduced Saudi Arabia's dependence on oil-related income and positioned the kingdom to better weather economic challenges.
Investment Attraction
Saudi Arabia continues to work on attracting sustained investment. Upcoming high-level meetings between US officials and leaders from Saudi Arabia, Qatar, and the UAE present opportunities to further the agenda of bilateral investments.
Other GCC Countries
While Saudi Arabia's progress is noteworthy, other GCC countries are also navigating the changing economic landscape with varying degrees of success.
United Arab Emirates (UAE)
The UAE stands out as a success story in terms of economic diversification. The impact of oil on the UAE's GDP has been less than 40% for some time, indicating a well-diversified economy. This positions the UAE to potentially benefit from changes in global trade flows, supply chains, and logistics.
As an established procurement and logistics hub for many global institutions, the UAE may see some upside from potential global trade shocks. Its strategic position and diversified economy make it more resilient to oil price fluctuations and global economic uncertainties.
Kuwait, Bahrain, and Oman
Other GCC countries face varying degrees of vulnerability to oil price fluctuations:
- Kuwait and Bahrain are considered more vulnerable to oil price challenges.
- Oman is likely to be adversely impacted if oil prices remain low for an extended period.
These countries may need to accelerate their own diversification efforts to mitigate risks associated with oil price volatility.
Sub-Saharan Africa: Complementary Growth
The increasing focus on investments in Sub-Saharan Africa is seen as a complementary expansion of investment horizons that could ultimately benefit both the MENA region and Africa, rather than a competitive shift that diverts resources.
Opportunities for Integration
As the world rethinks supply chains and trade flows, there are significant opportunities for increased trade and integration between the MENA region and Sub-Saharan Africa. Key areas of potential collaboration include:
- Renewable energy projects
- Infrastructure investments
- Technology partnerships
- Critical minerals and rare earth elements for AI and data centers
- Food security initiatives
Increasing Trade and Investment
Over the past decade, trade between GCC countries and Sub-Saharan Africa has grown significantly:
- UAE's trade with Sub-Saharan Africa has increased by more than 30%
- Saudi Arabia's trade with the region has grown tenfold
This trend is expected to continue, with more Sub-Saharan African entrepreneurs and companies leveraging GCC markets, particularly the UAE, as management, logistics, and procurement hubs.
African Continental Free Trade Agreement
The African Continental Free Trade Agreement presents an opportunity to accelerate intra-Africa trade. This agreement, with a vision for implementation by 2031, could be a catalyst for increased economic integration within Africa and create new opportunities for partnerships with the MENA region.
Key Pillars of Transformation in Sub-Saharan Africa
Several factors have contributed to the economic transformation and increased attractiveness of Sub-Saharan Africa for investments:
- Consistent reform agendas in key markets
- Macroeconomic stability improvements
- Rich natural resources with potential for further exploration and value chain development
- Focus on renewable energy and energy sector reforms
- Infrastructure investments
Reform Agendas
Several African countries have implemented more consistent reform agendas compared to the past. Nigeria, for example, has made significant progress in reforms on both monetary and fiscal fronts, addressing issues such as oil subsidies, foreign exchange liberalization, and trade revitalization.
Natural Resources and Value Chains
Africa's significant potential in natural resources presents opportunities not just for extraction but also for building out value chains. This approach allows African countries to benefit from the premium of value creation rather than simply being commodity producers and exporters.
Renewable Energy Focus
While many African countries still rely on hydrocarbon energy sources, there is a growing focus on renewable energy, particularly solar power. Countries like Kenya are making concerted efforts to incorporate solar energy into their energy reform strategies.
Egypt's Economic Reforms
Egypt has been undergoing significant macroeconomic reforms over the past few years, working closely with the International Monetary Fund (IMF). These reforms have focused on fiscal reform, monetary stability, and debt management.
Progress and Investor Perception
The reform program in Egypt has made substantial progress, with several phases completed and positive assessments from IMF missions. This progress is helping to build confidence among the broader investor community regarding Egypt's commitment to economic reform and stability.
Some of the most immediate challenges that were impacting cross-border business have been addressed, improving the overall business environment.
Potential Benefits from Global Trade Tensions
Egypt's position in a lower tariff bracket (around 10%) could potentially benefit the country if global trade tensions persist. This situation could make Egypt an attractive hub for increased Foreign Direct Investment (FDI), particularly in sectors such as:
- Services industry
- Light manufacturing
- Logistics
Egypt already has significant industrialization and existing production hubs for many global industries. Leveraging this existing infrastructure, combined with the experience gained from quickly shifting supply chains during the COVID-19 pandemic, could position Egypt to capitalize on changes in global trade patterns.
Key Priorities for the MENA Region
Reflecting on the discussions from the IMF World Bank Spring Meetings, several key topics emerged as critical for the MENA region:
- Preparing for risks and opportunities with agility
- Addressing the diverse needs of oil exporters and importers
- Focusing on regional integration
- Diversifying partnerships and trade relationships
Agility in Risk Management
Given the mixture of oil exporters and importers in the MENA region, as well as the varying economic strengths of different countries, being prepared for key risks while not missing out on opportunities is crucial. Each country will need to assess its own realities and develop strategies accordingly.
Regional Integration
The MENA region has significant potential for achieving growth through regional integration, both within itself and with neighboring regions such as Africa and Central Asia. Pursuing these integration opportunities can help diversify economic partnerships and create new avenues for growth.
Diversification of Partnerships
In light of global economic uncertainties, it's important for MENA countries to continue diversifying their trade relationships and economic partnerships. This approach can help mitigate risks associated with dependence on specific markets or sectors.
Conclusion
Despite global economic headwinds, the MENA region's commitment to structural reforms, investment in human capital, and economic diversification positions it to potentially emerge stronger and more integrated into the global economy. While challenges persist, the region's proactive approach to economic transformation and its strategic geographical position offer opportunities for growth and resilience in the face of uncertainty.
The key to success will be maintaining momentum on reform agendas, capitalizing on opportunities for regional integration, and remaining agile in response to global economic shifts. By focusing on these priorities, countries in the MENA region can work towards sustainable economic growth and increased prosperity for their populations.
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